It’s one thing to call for planners to voluntarily abandon commissions and move to fees. It’s another thing for them actually to do it, and to ask them to do it unsupported by any other parties.
Some planners already operate on a fee-for-service basis. Some are considering it. And some eventually will. Others will not budge – and theoretical arguments aside, who can really blame them?
Some simply have too much vested in the commission system; others have been in the game so long they’re just not prepared to put in the hard yards required to effect the necessary changes.
These planners continue to be nurtured and sustained by the commission system, supported by financial
institutions, some of whom are focused more on sales than on planners’ reputations and professional status.
So perhaps there has to be a top-down approach to the issue, in conjunction with the bottom-up efforts of planners themselves. Perhaps it’s going to take some guts on the part of a financial institution to stand up and say: we think commissions should go. It may take more than just offering zero-commission product alternatives. It may take actually expunging commissions altogether from the business model.
(A by-product of a move like this could be to reduce the cost of investing, and to increase the net return to investors – precisely the outcome that the Minister for Superannuation and Corporate Law, Senator Nick Sherry, wants to achieve in the superannuation sphere.)
It’s not fair to expect planners to shoulder the entire burden for these sorts of changes. They need to be supported by product manufacturers, by regulators, by the media and ultimately and most importantly, by the public.
Of course, institutions’ business models are bound to commissions as tightly as many planners’ are. It might help, though, if fund managers and other institutions made it clear that the products they manufacture are intended as investment solutions for investors. But when you hear a financial institution use the word “distribution”, the subliminal message is that they see planners simply as a way to sell products to the public.
The planner’s role is to represent his or her client. The vast majority do that impressively well – and let’s not confuse in this debate the quality of advice and value of advice (they’re two separate issues).
Professional planners should be paid by clients, not by the institutions whose products they sell. The Government has already made noises about banning commissions on Superannuation Guarantee contributions. That idea had merit, even before Storm.
But we can see that the firm’s actions have already heightened the political and the ammunition they need to take things further.
This is the second of four blogs by Simon Hoyle on why Storm proves that the commission system is fatally flawed.
Tomorrow’s blog: Is there really a case for banning commissions altogether?
